Hotels still popular for investors

Tim Harrup

Real estate advisor Cushman & Wakefield has conducted a survey on hotel investment as a result of Covid-19. It was completed by over 50 respondents, including senior representatives of major private equity firms, funds, REITs and other institutional investors active in the European hotel real estate market. The respondents’ firms invested in aggregate over EUR 26 billion over the last five years (2016-2020), acquiring 664 hotels with 127,642 rooms, accounting for about a quarter of all hotel transaction volume in Europe. Despite COVID-19 and its disturbing short-term impact on the hotel sector (average occupancy in European hotels is still relatively low at around 25% in May 2021), real estate investors remain optimistic about the long-term future of the sector. According to the survey, 40% of respondents intend to buy more hotel real estate, while 29% plan to continue with their investment activity as before the pandemic. Only 21% of investors plan to decrease their hotel acquisition activity.

The prevailing investment strategy adopted by hotel investors in 2021 is to primarily focus on higher-risk-and-return acquisitions, including value-add and opportunistic investments, a strategy favoured by 34% and 31% of respondents, respectively. Alongside this, some 15% of investors intend to deploy a full spectrum of strategies, seeking core, value-add and opportunistic investments. The expectation of hotel dispositions at reduced price levels due to the pandemic is a frequently reported reason for real estate investors to raise capital for investment in hospitality real estate.

In terms of investment targets, hotel types and markets, the Cushman & Wakefield survey finds that despite the complexity of their operation and seasonality, resorts have gained popularity among investors, with 70% of the survey respondents considering them to be more attractive now than before Covid-19. This is probably driven by the expected faster recovery and long-term growth prospects of leisure travel. Serviced apartments also seem to become a more attractive asset class for investors (according to 60% of respondents), which is not surprising given their better resilience during the pandemic and flexibility to shift to the medium to the long-term rental sector. On the other side of the coin, hotels focusing on the meeting, incentives, conferences and events market and those located at airports have not unsurprisingly recorded a reduction in appeal for most investors, given the deeper impact of Covid-19 on these venues. Nevertheless, at least 24% of respondents indicated that they had not changed their interest in these hotel types, which is an encouraging sign that some investors look beyond the short-term challenges.

Where the attractiveness of hotels based on their price positioning is concerned, economy to upper-midscale classes seem to be gaining most in popularity, a rising target for 50% and 33% of respondents respectively, while for most remaining investors, the appeal of these hotel classes has not changed. On the other hand, there seems to be some polarization among investors when it comes to the upper-upscale and luxury classes. While these hotels recorded rising attractiveness for a notable percentage of respondents (27% and 29%, respectively), a meaningful share also indicated that these hotel classes became less attractive (20% and 29%, respectively). Nevertheless, the highest number of respondents (53% an 43%, respectively) indicated that the investment appeal of upper-upscale and luxury hotels has not changed as a result of Covid-19.

Development of more than 5.000 extra hotel rooms in Belgium

In a recent report De Tijd gives a clear view of the current hotel sector market on Belgium and the evolution for the coming years with a lot of newcomer hotel groups developing in the country. Despite the ongoing corona crisis, dozens of large hotel construction projects are on the go. In the Brussels region, now good for 200 hotels, some 20 projects are in the pipeline, representing almost 3,000 rooms. Around half are part of a mixed development project, which also includes shops, homes or offices. Ghent expects 10 hotels with 1,100 extra rooms, which will increase the city’s capacity by half. Antwerp is to see 1,400 extra rooms in the near future. Is this an oversupply of hotel rooms in the making? Experts point out that on average half of the planned projects see light of day. In certain segments, such as trendy and budget hotels, Belgian cities are catching up.

In Brussels, Befimmo is developing the ZIN project on the ex-WTC site in 2023, which will house 180 hotel rooms in addition to the Flemish public authorities’ offices – first boutique hotel ‘The Standard’ -. Next year a project by British chain The Hoxton will see the opening of a 198 room hotel in the Victoria Tower overlooking Brussels botanical gardens. Immobel is planning various mixed hotel projects: in the centre – 152 rooms in the Brouck’R project and around 200 rooms in the Oxy project (former ‘Centre Monnaie’ building developed with Whitehood) and on the Sablon (Lebeau project). In the periphery a new hotel is set to open in Diegem in The Wings project developed by Ghelamco. In Boitsfort, the conversion of the iconic building ‘Royal Belge’ - former headquarter of Axa insurance group – will include a 212-room-hotel to be operated by ‘Limited Edition Hotels’ company. Developer Triple Living’will include a hotel in the new towers to rise along Brussels canal on the former offices site of KBC Bank.

In Antwerp, IRET is set to open the five-star Botanic Sanctuary this summer. Hip budget hotels are also popping up. The French chain B&B is opening an establishment on the Meir. Triple Living's 'economy design hotel' Prizeotel will open on the Eilandje site. And in 2024, the German affordable design chain Motel One will locate near to Het Steen.

Ghent is increasingly popular with tourists and its harbor and university also attract business people. In recent years, the number of hotels has fluctuated around the 40 mark. This year alone, three brand new hotels will be added: the French B&B chain near the Veldstraat, the Dutch Van der Valk at the Ghelamco Arena and the boutique hotel Yalo in the Brabantdam. The high demand and limited supply make Ghent substantially more expensive than Antwerp. Four of the ten planned projects are located around Dampoort station. Twin Properties has applied for a permit for a 161 room hotel. Developer Candor is building an Adagio Access aparthotel and has decided to expand its recently opened Ibis Budget

Read more in the De Tijd Report [ 5.000 nieuwe hotelkamers gepland in Gent, Antwerpen en Brussel ]